No end to car repossessions

Johannesburg - With motor vehicle sales showing no signs of recovery, it is impossible for dealers to implement the necessary price increases. Moreover, banks could soon be repossessing yet more cars from defaulters.

Vehicle prices have so far been increased by only a third of what is really needed, notes Econometrix economist Tony Twine. The weakening of the rand against the yen and the euro, in particular, necessitates hikes of between 30% and 40% (depending on local content), but vehicle prices are currently only 13.2% higher than in February 2008. "They will soon have to yield to cost increases," he comments.

McCarthy group chairperson Brand Pretorius says market conditions make it impossible for dealers to put through the price rises. He says that McCarthy's sales to the end of last week were 10% lower than those of February, although March has historically been the best sales month of the year. And April, which will not have a single complete working week this year, "could be catastrophic".

Twine also predicts a poor showing in March, but remarks that "it's still too early to panic" because 70% to 80% of sales normally occur during the last week of a month.

Pretorius does not believe a short-term recovery in the new-vehicle market is in sight. The used-vehicle market, which has a slight backlog in supplying the huge demand, seems to be the only ray of light.

This lower stock levels will cause the prices of used cars to rise somewhat, considerably narrowing the gap between used and new vehicles.

Marcel de Klerk, managing executive of Absa's vehicle & asset finance division, comments that substantial price hikes for new cars can be expected in the coming months.

He also predicts a 20% to 30% drop in this month's sales, based on the number of loan applications.

These applications rose by only 2% in the first 13 days of March, compared with the corresponding period in February. He says that March's figure has historically been 10% to 15% higher than February's.

De Klerk notes that Absa is currently approving more loans, since better applications are being presented from "better quality" clients.

Levels of bad debt are a more serious concern.

Overdue instalments in December 2008 exceeded those of the past three years. De Klerk says clients tend to struggle with payments over the Easter holidays, which are just around the corner.

Absa expects that repossessions, after stabilising recently, will again increase in April to just below the peak of 7 000/month seen between February and July 2008. Currently 6 000 vehicles a month are being repossessed by all the banks. It takes at least three months for a bank to take back a vehicle.

Apart from repossessions, other factors will also lead to a greater supply of vehicles to the market.

The fleets of vehicle-leasing companies like Budget, Avis and McCarthy's Imperial will be refreshed in time for the April holidays.

Pretorius says many dealers are now licensing their vehicles as demonstration models, so as to be able to sell them as second-hand.

- Sake24.com

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